ColorMatrix corrects the colors of mpeg2 streams of dvds. More correctly, those mpeg2 streams are encoded using a different set of coefficients as used by AviSynth's color conversion routines or by the XviD/DivX decoders, with the result that DivX/XviD clips or mpeg2 clips encoded by TMPGEnc/CCE using AviSynth or VirtualDub are displayed with slighty off colors (which looks like a small difference in brightness[*]). This can be checked by opening the mpeg2 stream directly in VDubMod. More info can be found in the readme.

How to properly use this filter?
Say if I want to re-encode a DVD to DVD-R for TV playing. I assume I should use YUV and TV scale in DVD2AVI. I can find the original matrix coefficient with GSpot which has following type: